Vodafone report resilient results despite drop in organic service revenue

The telecoms giant exceeded market expectations as it successfully managed the impact of the coronavirus pandemic

Article updated: 27 July 2020 8:00am Author: Ian Forrest

  • The company reported a 1.3% drop in first quarter organic service revenue but remains on track to deliver its previous forecast of €5bn in free cash flow
  • The company also announced that it has decided to float its towers business on the Frankfurt exchange rather than in London
  • This is a blow for London as the business, named as Vantage Towers, generated revenue of €950m last year
  • The shares dropped 3% in early trading following the news but they have been rising steadily in the past 10 days and the market backdrop today is weak
  • Recommendation: We continue with our Buy recommendation for investors seeking income and willing to accept a low to medium level of risk

Vodafone reported a 1.3% drop in first quarter organic service revenue today due to the impact of the coronavirus pandemic. However, that was better than the market expected and the company described it as a resilient performance. Revenue in Germany remained steady and Vodafone confirmed that it is on track to deliver its previous forecast of €5bn in free cash flow.

The company also announced that it has decided to float its towers business on the Frankfurt exchange rather than in London. The listing, due in early 2021, has been expected for some time and will be of significant size given that the business, named as Vantage Towers, generated revenue of €950m last year. It may be even larger if Vodafone’s 50% stake in the largest UK towers business, Cornerstone, is also included. Given that its headquarters are in Dusseldorf and most of the towers are in Germany it is perhaps no surprise to see the company floating there.

The shares dropped 3% in early trading following the news but they have been rising steadily in the past 10 days and the market backdrop today is weak. The trading figures show some impact from the travel restrictions imposed during lockdown but also demonstrate the relative stability of the business during turbulent times and a good performance in Germany. The decision to float the towers business in Frankfurt is clearly a blow for London and the precise timing of the deal will depend on whether big investors are willing to meet the company’s valuation of the business. If the global economic situation worsens into next year then markets may be too volatile to launch an IPO.

The shares offer a very attractive 6.7% dividend yield which looks more sustainable than some other big income stalwarts in the current environment. We continue with our Buy recommendation for investors seeking income and willing to accept a low to medium level of risk.


All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.

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Ian Forrest

Investment Research Analyst

Ian’s background in investments, financial journalism and research has seen him advising private investors on equities and helping to manage portfolios. His qualifications include the Certificate in Financial Planning and the Chartered Institute for Securities & Investment’s Investment Advice Diploma.

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